A Structural View of U.S. Bank Holding Companies

Large banking organizations in the United States are generally organized according to a bank holding company (BHC) structure. In this article, we describe the organizational structure of large U.S. bank holding companies and present summary statistics that document the increasing size, complexity, and diversity of these organizations. We also outline the different types of regulatory data filed with the Federal Reserve by U.S. bank holding companies and describe the strengths and weaknesses of these data, as a source for researchers and others interested in these organizations.

A BHC is simply a corporation that controls one or more banks. Typically, a large U.S. parent BHC owns a number of domestic bank subsidiaries engaged in lending, deposit-taking, and other activities, as well as nonbanking and foreign subsidiaries engaged in a broader range of business activities, which may include securities dealing and underwriting, insurance, real estate, private equity, leasing and trust services, asset management, and so on.

Chart 1 illustrates the rapid growth in the size and scope of BHCs over the past twenty years. As shown in the chart, nearly all U.S. banking assets are controlled by bank holding companies, and U.S. BHCs as a group (inclusive of firms whose ultimate parent is a foreign banking organization) control well over $15 trillion in total assets, representing a fivefold increase since 1991. (1) By comparison, nominal GDP increased by only around 150 percent over the same period.

Notably, assets held in nonbanking subsidiaries or directly by the BHC parent account for a progressively larger share of total BHC assets over time (the gray area in Chart 1, panel A). This trend reflects a significant broadening in the types of commercial activities engaged in by BHCs and a shift in revenue generation toward fee income, trading, and other noninterest activities (Stiroh 2004). These trends are attributable in part to important changes in the regulatory environment, as discussed in Section 2.

Partly the result of a wave of mergers, the share of BHC assets controlled by the ten largest firms has more than doubled over the past two decades, from less than 30 percent to more than 60 percent (see Chart 1, panel B). The total number of firms organized as BHCs has declined from 5,860 in 1991 to 4,660 as of fourth-quarter 2011, also reflecting industry consolidation. See Copeland (2012) for a further discussion of trends in banking consolidation and income generation.

Chart 2 provides a window into the organizational complexity of large BHCs. One simple measure of complexity in this context is the number of separate legal entities in the BHC. This variable is plotted in the top panel, sorted in rank order across firms. Today, the four most complex firms measured on this dimension each have more than 2,000 subsidiaries, and two have more than 3,000 subsidiaries. In contrast, only one firm exceeded 500 subsidiaries in 1991. BHCs have also expanded their geographic reach; each of the seven most internationally active banks controls subsidiaries in at least forty countries.

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Building on these stylized facts, in Section 2 we describe the origins of the BHC organizational form and discuss several key pieces of legislation that have shaped the scope and size of the U.S. commercial banking industry. Section 3 outlines the typical organizational structure of large BHCs and presents a primer on the types of regulatory data filed by these firms. Making use of these data, Section 4 presents additional stylized facts about the organizational complexity and scope of large BHCs. Section 4 also includes preliminary statistical analysis of the determinants of organizational complexity, proxied by the log number of subsidiaries. The analysis suggests that complexity is positively related to BHC size and weakly positively related to the diversity of the BHC's activities. …

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